Advertisement
  1. Business

Dear Penny: Did co-signing my daughter's student loan kill my chance of retiring?

Published Jun. 12

Dear Penny,

I'm hoping to retire in four years. I have $3,000 in credit card debt and $60,000 in auto and RV debt. I'm planning on selling my house and using the equity to buy a smaller house and not have a mortgage.

Here's the problem: My daughter lost her job and cannot pay the student loans I co-signed many years ago. My debt-to-income is too high, so the bank will not give me any more money, such as a home equity line of credit or loan.

I can take money out of my retirement to pay the school loans, but that will leave very little left for retirement. I can't find any assistance for co-signers of school loans.

My daughter is estranged from me, so she has no intention of helping me or even finding employment.

I don't know if I will ever be able to retire, or if I'll end up with enough equity to move without being able to get a small mortgage if needed. Do you have any advice on how to handle?

-S.

Dear S.,

The fact that you haven't been able to find resources for student loan co-signers isn't surprising, because there aren't many options in this situation.

When you co-signed your daughter's student loans, you and your daughter became equally responsible for repaying them. And since your daughter can't make the payments, the burden falls on you. You're just as obligated to pay back these loans as you would be had you taken them out for your own education.

Because federal student loans rarely require a co-signer, I'm assuming these are private student loans. So unfortunately, your options for lowering your monthly payments will pretty much be at the discretion of your lender.

I say all that not to scare you. I can only imagine how the financial pressures you're feeling are compounded by the heartache over being estranged from your daughter.

But it's important to approach this situation realistically. As you probably know, student loans are almost never discharged in bankruptcy. So your only options are to pay them off or go into default.

The latter will destroy your credit and could result in your wages being garnished. But the option you suggest — of using your retirement funds to pay off your debt — would put your finances in seriously shaky territory.

The first thing I want you to do is repeat after me: "I will not use my retirement savings to pay off debt." Repeat if necessary. That money's purpose is to support you during your golden years, not to pay off debt. And unlike a bank account, a retirement fund is protected from creditors if you're sued or file bankruptcy.

Your best option is to get rid of your other debt so you can free up money to put toward your student loan balance. Doing so, you'll also lower your debt-to-income ratio, which your bank will probably require to be at 43% or lower to approve you for a mortgage or home equity loan.

Based on what you've told me, your best option might be to sell the RV and car, then downsize to a cheaper used car. A more radical approach would be to sell your house now and live out of the RV.

If you're not willing to part with your house or your vehicles now, you could try earning extra income to pay down the loans by renting out the RV and part of your house.

As for your plans to retire: You say you plan to retire in four years, but you also say you don't know if you can ever retire. Maybe the realistic plan falls somewhere between four years and forever. You may have to retire a few years later than you'd hoped, but you will get to retire eventually.

Regardless of when that day comes, you'll be a lot more comfortable if you bring as little debt as possible into your retirement years.

Robin Hartill is a senior editor at the Penny Hoarder and the voice behind Dear Penny. Send your questions about student loans to AskPenny@thepennyhoarder.com.

ALSO IN THIS SECTION

  1. Bubba's 33 recently broke ground on its first restaurant in Florida, which will open in Wesley Chapel in December. Pictured, left to right: Experience Florida's Sports Coast (Tourism) Director Adam Thomas, Bubba's 33 marketing director Crista Demers-Dean, Bubba's 33 managing partner Jeff Dean, Pasco County Commissioner Mike Moore and North Tampa Bay Chamber CEO Hope Allen. Andy Taylor
    News and notes on local businesses
  2. Sharon Hayes, the new chief executive officer at Bayfront Health St. Petersburg, says she will draw on her roots in nursing as she engineers a turnaround for the hospital. SCOTT KEELER  |   Times
    The city’s largest hospital has suffered setbacks under a corporate owner, but a new leader says it’s time for an infusion of “love and attention.”
  3. Target and some other big retailers plan to hire more seasonal workers than last year.
    Tampa Bay businesses could struggle to find enough qualified workers during the busy holiday shopping season.
  4. Rendering of proposed UPC Insurance headquarters and hotel in St. Petersburg. Alfonso Architects
    Project would include wider sidewalks, more trees and street lighting.
  5. From left, Celestar CEO Gregory Celestan, Duke Energy Florida president Catherine Stempien and Raymond James Financial chairman and CEO Paul Reilly were three of the Tampa Bay business leaders to make Florida Trend's Florida 500 this year. Handout
    ICYMI: Florida Trend magazine released its list of the state’s 500 most influential business leaders.
  6. Tech company Priatek acquired the naming rights to Pinellas County's tallest building in 2015, but its name came off the tower at 200 Central Ave., in downtown St. Petersburg more than a year ago. (Times files | 2015)
    An investor and former member of the board of directors contends in court pleadings that company president Milind Bharvirkar wasted company funds.
  7. An architect's rendering shows part of a planned research center and hospital on N McKinley Drive in Tampa for the Moffitt Cancer Center. During the 2020 legislative session in Tallahassee, the center will seek an increased share of Florida's cigarette tax to finance the McKinley Drive project and other improvements. Moffitt officials said Thursday that the increase initially would finance $205 million, to be paired with $332 million they have already allocated for the project. Moffitt Cancer Center
    Florida lawmakers are the key to unlocking the money, which would pay for more hospital beds and research space.
  8. Macy's Countryside's personal stylist Lidia Luna, of Tampa, left, helps Lisanni Reyes, of Largo, pick out an evening dress at the department store in Clearwater. The chain, founded in 1858 by Rowland Hussey Macy, is in the midst of revamping its brand and stores, including the Clearwater store, which is among 100 stores nationwide, and 10 in Florida, to be updated this year. DOUGLAS R. CLIFFORD  |  Tampa Bay Times
    The new look and added services at the Clearwater Macy’s come as retailers shuttered more stores in the first six months of 2019 than in all of last year.
  9. 500 Harbour Island, on right. © C2 DESIGN GROUP INC  |  Jones Lang LaSalle
    The price is by far the most paid per unit for a Tampa Bay apartment community
  10. The Grove at Wesley Chapel Jones Lang LaSalle
    Tenants include Michael’s and T.J. Maxx
Advertisement
Advertisement
Advertisement